The evolution of retail banking

We’ve all read the headlines: countless stories in recent times suggesting that our traditional financial institutions and bricks-and-mortar branches are soon to be a thing of the past.

The seemingly more agile and convenient allure of online and mobile banking, as well as increasingly sophisticated ATM services, offers a more attractive option to the modern consumer.

But similar arguments have been made before. Whenever a new distribution channel has been launched – think telephone, online or mobile – someone has argued that “it’s different this time”. I disagree. The challenge lies in balancing traditional and modern distribution channels, to ensure that each complements the others and so meet the needs of customers while – importantly – preventing an escalation in the total costs of distribution.

A bright future

This means I believe that – despite the commentators focus on new entrants and “challengers” – the traditional retail bank has a bright future ahead of it.

After all, established financial institutions have experience and a history of resilience. Let’s not forget, they’ve seen off a number of seemingly impossible challenges, whether they be wars, recessions or previous market changes.

They’re also not as slow or technologically backward as some seem to think. For example, UK banks have taken the lead in bringing mobile banking to the masses. Over the last few years, they have rolled out an estimated 23 million banking apps to customers, with almost half the UK population now using them.

But there is no room for complacency. Long-term success depends on the larger banks mastering two key challenges – securing their relationship with customers and improving the efficiency and effectiveness of core operations.

Investing in customer relationships

This means enhancing existing business operations while investing in platforms that provide flexibility, resilience and enhanced cost control. It also means developing technology offerings that match or better those being deployed by new entrants to the market.

As you might expect, the greatest value comes from owning the customer relationship. Customers are the heart and soul of any banking operation. Consequently, established banks will continue to invest heavily in maintaining their commanding positions in this area.

And the key to maintaining this relationship lies an integrated distribution strategy. At Fujitsu, we believe in this fully; bank branches working closely with other channels to support each other and, ultimately, deliver the best service to customers.

Technology is the key

Branches can be upgraded with, for example, high-end communications networks, self-service equipment and easy customer access to floor-walking staff, equipped with tablets linked to enhanced customer databases that offer true client insight. Such services help banks build relationships and deliver the kinds of experiences and convenience that consumers increasingly value and expect.

Back-end efficiency and effectiveness

At the back-end, we expect operations to, increasingly, become automated and less differentiated. The resulting efficiency enhancements mean that the ability to compete around processing will become more limited, particularly once artificial intelligence (AI) becomes routinely deployed.

Over time, some banks will probably choose to outsource particular operations or enter into utility-style arrangements. Such arrangements have been common for some time in cash processing, cheque clearing and payments. We expect to see further examples, together with joint ventures and partnering, to emerge.

No room for complacency

While there is undoubtedly the opportunity for established banks to realise a bright future, there cannot be any room for complacency.

There are big changes taking place all around – whether technical, social or economic – and banks must be agile in addressing each.

Anthony Duffy is a highly experienced company director, senior manager and management consultant who has worked in the financial services industry and as an advisor to government for over thirty years.

In addition to advising numerous UK and continental European financial services organizations, Anthony has also held senior line management positions, including as Director of Strategy for a FTSE-100 bank; Deputy Managing Director of a UK commercial bank; and Managing Director of a UK asset finance company. He has also worked in central government, advising Cabinet ministers of the development and passage of company legislation.